Retirement Savings: Why $1.8M Is a Popular Target and How You Can Hit It Even If You Start at 40
Written by
Gabrielle Olya
Edited by
Chris Cluff
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Gone are the days when $1 million was considered a good target for your retirement nest egg. Workers now believe they’ll need to save an average of $1.8 million for retirement, according to Schwab’s 2023 401(k) Participant Study, which surveyed 1,000 currently employed U.S. 401(k) plan participants.
Here’s a look at why $1.8 million is the new average retirement savings target and how you can reach that goal even if you get a late start.
Is $1.8 Million a Good Retirement Savings Target?
For the average worker, $1.8 million is a target they believe would allow them to retire comfortably.
“Spread over a 25- or 30-year retirement, that’s a good goal for many, but a lot of factors come into play for each of us,” said Marci Stewart, director at Schwab Workplace Financial Services. “Where people want to live, how active they want their lifestyles to be, whether they want to leave a legacy and when they plan on retiring are all important to consider.”
Stewart notes that where you retire, in particular, can have a big impact on what your target savings goal should be.
“For example, there is a big difference between retiring in New York versus Florida when considering state tax rates,” she said.
In addition, if you plan to retire early, you will need a larger nest egg than those who plan to retire later in life.
“You have to save significantly more if you plan to retire at 55 than if you plan to work until you’re 67,” Stewart said.
When determining the ideal savings goal for you, you also need to take into account any other income streams you will have access to in retirement.
“How much you need to save depends on how much you expect to receive from other sources, like Social Security or pensions,” Stewart said.
Workers Are Less Confident They’ll Be Able To Save Enough for Retirement
The Schwab study found that just 37% of workers think it’s very likely they’ll achieve the target of $1.8 million — that is down by 10% from last year.
“A combination of factors have affected workers’ confidence about reaching their retirement goals,” Stewart said. “People are still feeling the pressure of higher prices even though the inflation rate has started to come down, and loans and credit card payments continue to be more expensive because of higher interest rates. Market volatility has also caused people to question if they will be able to meet their savings goals.”
Despite these headwinds, 401(k) participants are still making strides toward achieving their savings goals.
“The good news is people are still prioritizing their retirement savings despite these challenges,” Stewart said. “Our data found that 401(k) participants are continuing to invest in their plans at a similar rate, which is encouraging. Asking for help makes a big difference, too: 49% of workers told us they feel very confident making 401(k) investment decisions when they have the help of a financial professional. That’s nearly double the confidence level they feel when they make those decisions on their own.”
What To Do If You Start Saving for Retirement at 40
Thanks to compound interest, the sooner you start saving for retirement, the easier it will be for you to meet your retirement savings goals. But even if you’re starting at 40, you can still save up a healthy retirement nest egg.
“There are steps you can take to help you get back on track if you’re behind,” Stewart said. “First and foremost, make sure you are contributing enough to get your full employer match, if offered. From there, consider using an ‘auto-increase’ feature offered by many 401(k) plans to bump your savings rate each year by 1% or 2% when you get a raise. Those small increases can make a big difference over time.”
It’s also important to not get hung up on the number you think you need for retirement — not everyone will need to save $1.8 million to retire comfortably.
“Reassess your goal to account for reduced expenses during retirement, like commuting costs or mortgage payments,” Stewart said.
If you’re still far behind as you get closer to your target retirement age, you may need to adjust your retirement plans.
“Depending on your personal situation, you may consider working a bit longer or part time during retirement to boost your income,” Stewart said. “If you’re unsure where to start, call your 401(k) provider. Most plans offer financial guidance and even personalized advice to help you figure out how much to save, how to invest your account and how much you can expect to have in retirement. Putting a plan in place can boost your confidence and help you stay on track.”
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